News: Some advisers, VCs see interest in eco-friendly investing

The following article ran in the June 6, 2008 edition
of The Triangle Business Journal.

By Richard R. Rogoski

CHAPEL HILL – Responding to clients enticed by the green economy, some Triangle financial advisers are recommending exchange-traded funds and stocks of companies tackling environmental issues.

Angel investors and venture capital firms also are seeing more opportunities as a slew of startups are tapping into the market for biofuels and solar and wind power.

Interest in green investments is growing, says Andrew Burns, president and chief investment officer of Hamilton Point Investment Advisors in Chapel Hill. “For us, it’s like when China and India emerged on the scene a few years ago,” he says. “Investors are doing the same, ‘Oh my gosh!’ Every time we meet with clients, they ask about green companies.”

According to research firm Morningstar, the number of exchange-traded funds, or ETFs, with a green focus, has increased to 21 from 12 in the past two years.

As a money management firm, Hamilton Point buys stock in individual companies for its wealthy clients whose average age is in the mid-50s, Burns says. “We own about 40 blue-chip stocks,” he says. “Our clients are looking for more conservative investments.”

While picking companies that are at least in part green, Burns also has to meet clients’ expected financial returns over the long haul.

One company he points to is United Technologies, which in 2007 generated almost $55 billion in revenue.

United’s Otis Elevator division invented an energy-efficient elevator. And the company also has drummed up a technology that uses salt to store energy, which can be used in solar energy applications, Burns says.

United also is working on geothermal solutions, he adds. “They claim that over 90 percent of the world’s energy is wasted,” Burns says.

Tommy Sykes, president and portfolio manager of TS Financial in Hillsborough, says he’s seeing less interest this year in green funds and individual green companies.

“I see a lot more about green investing, so there’s clearly a market out there,” he says. “But we have about three dozen clients and only about four or five have invested in green funds,” he says.

Sykes says the current economy may have something to do with it. “They’re just not as attractive as last year. Most are still small, emerging companies that are volatile,” he says. “And they are more affected by downturns in the economy.”

For clients who are interested in this type of investment, Sykes says he steers them toward exchange-traded funds. “I like them because you can put a stop-loss on them and you’re not committing to just one company.”

Hamilton Point also offers an ETF index fund: the PowerShares Cleantech Fund (ticker: PZD). “It consists of about 50 companies that have to get 50 percent of their business from something green, like desalinization or solar,” Burns says.

Among the fund’s portfolio companies are Suntech Power Holdings, Siemens, ABB, First Solar, Cree, Corning and Trimble Navigation, which uses GPS and laser technology to guide the width and depth of digs made by earth-moving equipment such as backhoes and front-end loaders, Burns says.

Begun in 2006, this fund had a positive yield last year of 17 percent. This year, however, its year-to-date yield was negative 2.8 percent as of May 8.

Another company Burns likes is General Electric. “About $14 billion of their revenues are in ‘ecomagination,'” he says, invoking the company’s description of its green initiatives.

Burns says GE has made strides in gasifying coal to make it burn cleaner and has become the world’s leader in windmills.

As with any investment – whether green or otherwise – Burns warns, “People should be cautious.”

Also hoping to cash in on the green rush are venture capital firms – pools of cash from wealthy investors that are pumped into early-stage companies, usually with novel technologies.

According to a report by consulting firm Ernst & Young based on data from Dow Jones VentureOne, venture capital flowing into “cleantech” firms nationwide increased by 18 percent, to $571.6 million, in the first quarter of 2008, compared to $483.9 million in the same quarter last year.

One venture capital firm with a decidedly green hue is SJF Ventures, which has offices in Durham and New York.

David Kirkpatrick, co-founder and managing director, says SJF has made investments through its two funds – a $17 million first fund and a $28 million second fund. “Our typical investment is between $1 million and $2 million, sometimes up to $3 million,” he says. The firm was called the Sustainable Jobs Fund until a name change in 2001.

Kirkpatrick says potential portfolio companies need to display a business model with a positive societal impact, such as reducing carbon emissions, providing healthier food, increasing access to information or creating engaging work environments. Among SJF’s investments are: Intechra, groSolar, Ed Map, Preclick, Telkore Inc., Foxfire, Rustic Crust and Home Bistro.

So far, most of these investments have proven to be successful, Kirkpatrick says. For example, White River Junction, Vt.-based groSolar, which specializes in solar hot water heating systems, has raised an additional $10 million in growth equity financing. “We led a series A round for $2.5 million, and the company tripled its revenue in a year,” he says.

Intechra, a Jackson, Miss.-based company with over 250 employees, helps large corporations recycle their electronic waste. SJF was part of a $6.5 million equity round in 2006. Now, Intechra is a $100 million company, Kirkpatrick says. Of SJF’s 20 investments, one – a New Jersey-based company that developed adhesive films for industrial applications – went out of business. Eight firms have been sold.